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About 500 plush dogs and cats are spread out with help from Lackawanna County Sheriff’s Department Cpl. Corey Cavalieri on Thursday at the Aaron Center in Dickson City, with more stuffed animals to be donated in the next few weeks.
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On the morning of Dec. 7, 1941, Joseph P. McDonald manned the switchboard at Fort Shafter in Hawaii when he received the alarming message that radar had detected a large number of planes approaching from the north, heading fast for Oahu.
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At $150 million and counting, Scranton’s pension fund shortfall is at an all-time high.

Soaring liabilities, coupled with a drastic decrease in assets, took a massive financial toll on the police, fire and nonunion pension funds between 2010 and 2012, causing the combined deficit to skyrocket by $36.6 million.

And the news is expected to worsen in coming years as court-ordered increases in salaries for police officers and firefighters will add as much as $10.5 million in liability to their pension funds.

The dire financial straits of the funds are detailed in a report the city forwarded last month to the Public Employee Retirement Commission, a state agency that oversees defined benefit plans of municipal governments.

The report shows combined liabilities increased from $173 million as of Dec. 31, 2010, to $194 million as of Dec. 31, 2012, a 12 percent spike. Assets, meanwhile, plummeted from $59.8 million to $43.8 million, a 26.8 percent drop, in the same time frame. This drop in assets coupled with increased liabilities creates a $150 million deficit.

The police pension fund fared the worst, seeing its deficit increase from $42.7 to $62 million, a 45.1 percent rise. The fire fund also took a big hit, with its deficit increasing from $61.9 to $78.9 million, a 27.4 percent hike. The nonuniform fund fared much better, but still saw its deficit increase from $8.9 million to $9.4 million, a 5.8 percent increase.

The report, prepared by the city’s pension administrators, provides a snapshot of the plans’ financial condition. State law requires the city to provide PERC a report every other year.

This year’s report comes just as the city’s composite pension board learned the police and fire funds will have to pay out another $6.9 million to $10.5 million to retirees based on the 2011 Supreme Court ruling that awarded $21 million in back pay to firefighters and police officers. The pension fund is impacted because retirees are entitled to a portion of the raises granted active members.

That debt, which is not included in this year’s report, will further reduce the funds’ overall value, likely worsening its financial health in coming years.

Larry Durkin, solicitor for the pension board, said he was not surprised the plans’ financial condition worsened. The funds take in roughly $5 million a year in contributions from the city, state and employees, but pay out approximately $13 million in benefits.

“It’s simple math. I know what we pay out every year, and I know we put in less than that. That can’t work,” he said.

Mr. Durkin said the pension plans were helped by strong investment returns. The report shows the funds earned a total of $6.8 million in interest through Dec. 31, 2012. That still was not nearly enough to cover costs.

The pension board and the plans’ actuaries repeatedly advised the city it also needs to pay more money into the funds, but it’s been unable to do so because of its dire financial straits.

Each year the city must pay a certain amount — known as the minimum municipal obligation, or MMO — into the funds. The payment is supposed to help ensure the pension funds remain solvent. The problem, Mr. Durkin said, is the MMO is artificially low in Scranton because of its status as an Act 44 distressed city, which allows it to legally reduce its contribution. The MMO for 2013, for example, was $11.9 million. Act 44 allowed the city to reduce the payment to $9.3 million.

Mr. Durkin said he knows city officials are aware of the pension funds’ dire straits, but they are limited in what they can do.

“I don’t think there is anyone in the city who is not concerned about this. They know more money has to come in, but clearly they don’t have the ability to do that,” he said.

Mayor Bill Courtright said the administration is focusing on the first part of the issue — obtaining financing to pay the overdue arbitration award. On that front, city officials have had a few discussions with the unions, he said.

“We’re more or less focusing on the first part,” Mr. Courtright said. “We told them we’re trying to get a financial institution to loan us the money” to pay the award.

The bottom line, though, is something must be done eventually as the current funding rate is not enough to sustain the funds, Mr. Durkin said.

“This structure doesn’t work,” Mr. Durkin said. “The numbers are what they are. ... You either put a whole lot more money in, or pay out less money.”

Jim Lockwood, staff writer, contributed to this report.

Contact the writer:

tbesecker@timesshamrock.com

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